I have a conservative strategy using a basket of currency pairs to trade USD.
For the sake of this example, assume that I’m risking 1% of total equity on each ccy pair at any one time.
This means that the difference between the trade price and my stop loss in pips needs to equate the £ amount I am willing to risk. The £ value needs to be divided by the number of pips to tell me how much money per pip I’m to risk.
Is it basically right that the leverage in your account doesn’t make much difference if you’re using stop loss distances along with lot sizes to determine the size of your trade?
If I wanted to risk huge amounts then I would need leverage as I don’t physically have the equity. However if that’s not the case could I use 1:1 and change the lot sizes each time?
Leverage is a good thing, it puts you in a stronger trading position & increases your potential earnings (as well as your potential losses). As they say, it’s a double edged sword - you just have to use it properly.
It opens up trading to those with lower capitals but as long as those people remember: just because you can trade a larger position size, it doesn’t mean that you should. Always use sound risk & money management.
My opinion is to take the highest leverage that’s on offer, but as I said, it doesn’t mean that you should use it.
With a $1,000 account & 1:20 leverage, $50 for every $1,000 in your position size will be held as security against your position. So if your 1% risk & your SL dictates a 10k position, then $500 is held as security, leaving you with $500 so depending on your trades, you could only have 1 or maybe 2 open at any given time.
Now with that same example & 1:100 leverage, a 10k position size would only use $100 allowing you to safely have more trades open.
All in all, leverage is good when used properly. Underfunded accounts & over-leveraged trades can be a road to demise when greed gets in the way but use it to your advantage (like above) & you’ll be fine. The subject is open to interpretation, these are just my thoughts & I’m no expert.
The account leverage is a maximum leverage, it is corresponding to the margin requirement your broker allows. When you open a trade risking only 1% of your account you are generally using a leverage bellow 1:10 (depending on you balance and the volume used), and you are well below the maximum leverage set up by the broker.
My opinion is against baz1982. If you have an account with a maximum 1:400 leverage, even if you swear to never use such an high/dangerous leverage, one day, in a bad moment, you will use it and eventually get a big loss. The best way to never derail from safety is to set up your account with safe parameters.
[QUOTE=“Orpexo;674905”]My opinion is against baz1982. If you have an account with a maximum 1:400 leverage, even if you swear to never use such an high/dangerous leverage, one day, in a bad moment, you will use it and eventually get a big loss. The best way to never derail from safety is to set up your account with safe parameters.[/QUOTE]
I can kind of agree with that, taking away the temptation does make sense.
Personally, I just like being over prepared: it’s better to have something & not need it than need it & not have it.
If you don’t have the self control, this is a very good option. As Orpexo & I have just proved, opinions will vary.